South Carolina Insurance Practice Exam

Which type of life insurance provides flexible premiums and a choice of investment for the cash value?

1. Whole life policy

2. Term life policy

3. Variable universal policy

4. Fixed universal policy

The correct answer is: Variable universal policy

The correct option is variable universal policy because it combines features of both universal life insurance and variable life insurance. With this type of policy, policyholders can adjust their premium payments and have the flexibility to choose how their cash value is invested among a variety of options, such as stocks, bonds, or mutual funds. This potential for investment choice can lead to varied returns, allowing for growth of the cash value depending on the performance of the chosen investments. In contrast, a whole life policy offers fixed premiums and guaranteed cash value growth, but does not provide the same level of investment flexibility as a variable universal policy. A term life policy provides death coverage for a specific period without any cash value component, thus lacking any flexibility regarding premiums or investments. A fixed universal policy allows for flexible premiums and death benefits but has a guaranteed interest rate for the cash value, so it does not allow for investment choice like a variable universal policy does.